Figure skating in melting times

Chinese Premier Wen Jiabao has announced his government’s intention to target an economic growth rate of 8 per cent this year. Given that most Chinese economists have been talking of 7 per cent growth, even assuming a government injection of one trillion dollars over the next two or three years, Mr Wen’s announcement has been met with some incredulity. But China is not talking up its economy any more than other governments. President Barack Obama, after all, has promised 3.2 per cent growth for a US economy that will struggle to avoid negative numbers this year. The Indian government has similarly been one to two percentage points higher in its growth estimates than pretty much everyone else.

Political leaders will use rhetoric in part because it is their job to restore confidence. Nonetheless, some recent statements about the condition of various national economies have been startling in their distance from reality. This is partly incomprehension. After all, the world has experienced strong growth for some 15 years. It is difficult for many to believe the good times are no longer rolling.

The real problem with this sort of rhetoric is that it is reflecting poor underlying policy. Too many governments are unwilling to come to grips with the hard choices required to put the economy back on its feet. Consider what is happening in China and the US. At the heart of the present crisis has been an enormous global imbalance. East Asians invested too much and consumed too little. Americans did the opposite. This imbalance was sustained by too much debt in the US and too much capital build-up in Asia. Eventually, bubbles formed and inevitably they popped. The overall fallout of Mr Wen’s and Mr Obama’s policies is that China invests more and the US saves less. This may give their economies a short-term boost, but will not put the world back on an even keel.

The larger malaise needs political leaders to move beyond the past language of assured high returns.

China’s statements, with those of other major economies, indicate this has yet to happen.